Rate cut possible only if inflation eases: Rajan

With reference to Anup Roy's report, "Inflation leaves no room for rate cuts, says Rajan" (August 30), the Reserve Bank of India's (RBI) Annual Report for 2015-16 continues to lay stress on reining in inflationary tendencies in the economy even as achieving that remains a challenge.

Ghosh also highlighted several demands and concerns of RBI as a reason for joining the strike. He pointed out three areas of importance, from RBI's perspective. Iranian oil minister Bijan Zanganeh on Friday said his country wanted its share of the crude market to return to levels seen before Western nuclear sanctions were imposed on it 13 years ago.

"The short-term macroeconomic priorities of the Reserve Bank continue to be to focus on bringing down inflation towards the government-set target of four percent", RBI Governor Raghuram Rajan wrote in the foreword to its annual report published on Monday.


Retail inflation shot up to almost two-year high of 6.07 per cent, while the one based on wholesale prices soared to a 23-month high of 3.55 per cent in July. Creative search for new management teams, including the possible use of public sector firms or private sector agents, is necessary, as are well-structured performance incentives such as bonuses for meeting cash flow or profit benchmarks and stock options, he said.

"Certainly, the reluctance to lend to industry and small businesses is more visible among the more stressed public sector banks compared to the private sector banks", he said.

"Not only does weak corporate investment reduce the volume of new profitable loans, their stressed assets have tightened capital positions, which may prevent them from lending freely", Rajan said. However, consumption demand led by a good monsoon, government wage increases as a result of the award of the Seventh Pay Commission and overall economic pick-up should help the economy register gross domestic product growth of 7.6 per cent in 2016-17, up from 7.2 per cent a year ago. With final demand picking up, capacity utilisation is likely to increase, and so will investment.


Additionally, it is imperative that banks improve operational efficiency of stressed assets and create the right capital structure so that it works out for all stakeholders.

According to him, one of the critical components of the medium term strategy in the financial sector will be to strengthen the public sector banks in all aspects, including governance, cost structure, and balance sheets.

On the Monetary Policy Committee, Rajan said: "This will be a welcome step forward in strengthening the transparency, continuity, and independence of monetary policy".



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